Investment Highlights

• We maintain BUY recommendation on Glomac with an unchanged fair value (FV) of RM0.37/share based on a 50% discount to its RNAV (Exhibit 7) and a neutral ESG rating of 3 stars (Exhibit 8).

• Glomac’s 1HFY23 core net profit (CNP) of RM17mil came in largely within expectation, making up 48% of our FY23F earnings and 46% of consensus estimate. Hence, we make no changes to our forecasts.

• In 1HFY23, the group’s CNP surged 28% YoY while revenue expanded 38% YoY. This was mainly contributed by a stronger revenue growth of 39% YoY from property development. 1HFY23 saw higher property sales, coupled with an acceleration of site progress works with the reopening of the economy.

• Glomac secured new sales of RM106mil (2.2x YoY) in 1HFY23, attaining 33% of its FY23F sales target of RM321mil (Exhibits 3 & 5).

• We understand from management that sales momentum is typically stronger in the second half of the financial year. Meanwhile, Glomac’s subsequent sales will be further supported by planned launches worth RM510mil in 2HFY23 (Exhibit 4). Hence, we believe its FY23F sales target remains on track.

• Meanwhile, the group’s unbilled sales dropped 4% QoQ to RM491mil, which represents a cover ratio of 1.6x of FY23F revenue (Exhibits 3, 5).

• The average take-up rate for its ongoing projects as at 31 October 2022 was stable at 92% vs. 91% as at 31 July 2022 (Exhibit 5).

• In 1HFY23, the property investment division’s operating profit was flattish at RM271K despite a 31% YoY growth of revenue. This is mainly attributed to higher operating cost incurred for common areas while tenants are still enjoying rental holidays during the early months of tenancy. Notably, the occupancy rate for Glo Damansara mall improved to 54% from 40% in end-April 2022.

• QoQ, the group’s 2QFY23 CNP surged 2.3x while revenue improved 20%. This was primarily caused by the normalisation of its operating margin to 29% in 2QFY23 from 16% in 1QFY23, which was dampened by the recognition of provisions for liquidated ascertained damages (LAD) on its Johor project in 1QFY23.

• As at 31 October 2022, Glomac’s unsold inventory level slid 3% QoQ to RM93mil. Over the past 4 years, Glomac’s inventory level of unsold units has been on a declining trend (Exhibit 6).

• We like Glomac for its promising long-term outlook, underpinned by its: (i) products with attractive pricing, as evidenced by its strong average take-up rate of 92% for existing projects; (ii) focus on township developments in the largest population state in Malaysia with strong housing demand; and (iii) FY24F earnings growth of 7%, backed by higher FY23F new launches of RM510mil vs. RM106mil in FY22. The new launches include the debut launches at GreenTec Puchong, Phase 4B of Saujana KLIA and Rumah Selangorku in Lakeside Residences (Exhibit 4).

• The stock currently trades at a compelling FY24F PE of 6x vs. a 4-year average of 15x, while dividend yields are decent at 5%.

Source: AmInvest Research - 1 Dec 2022